Strategic Management Final Notes

STRATEGIC PLANNING

&

2

MEANING & DEFINITION

Strategic Management can be defined as “the art and science of formulating, implementing and

evaluating cross-functional decisions that enable an organization to achieve its objective.”

• Definition:

“The on-going process of formulating,

implementing and controlling broad plans guide the organization in achieving the strategic goods given its internal and external environment”.

3

IMPORTANCE OF

STRATEGIC

MANAGEMENT

• Globalization: The survival for business • E-Commerce: A business tool

• Earth environment has become a major

strategic issue

• Strategic management – A route to success

MODEL FOR STRATEGY FORMULATION

Scenario’s

Visions, Missions,Values

External Analysis Internal Analysis

Functional Level Strategies Business Level Strategies

Structure Match Structure & Controls Controls Manage Strategic Change

5

INTERPRETATION

6

STAGES OF SM

• The strategic management process consists of three stages:

• Strategy Formulation (strategy planning) • Strategy Implementations

• Strategy Evaluation

7

THREE ASPECTS OF STRATEGIC FORMULATION

• Corporate Level Strategy: In this aspect of

strategy, we are concerned with broad decisions about the total organization's scope and direction. • It is useful to think of three components of

corporate level strategy:

(a) growth or directional strategy (b) portfolio strategy

(c) parenting strategy

8

Global Corporate Strategies

Need for National Responsiveness _High

Low

Low

High

Transnational Strategy

• Seeks to balance global efficiencies and local responsiveness • Combines standardization and customization for product/advertising strategies Globalization Strategy • Treats world as a single global market • Standardizes global products/advertising strategies

Multi-domestic Strategy

• Handles markets

independently for each country

• Adapts

product/advertising to local tastes and needs

N ee d f o r G lo b al I n te g ra ti o n Export Strategy •Domestically focused •Exports a few domestically produced products to selected countries 0

9

Global Strategy

• Globalization = product design and

advertising strategies are standardized around the world

• Multi-domestic = adapt product and promotion for each country

• Transnational = combine both globalization and national

responsiveness

10

• Competitive Strategy (often called Business Level

Strategy): This involves deciding how the company

will compete within each line of business (LOB) or strategic business unit (SBU).

• Functional Strategy: These more localized and shorter-horizon strategies deal with how each

functional area and unit will carry out its functional activities to be effective and maximize resource productivity.

11

Tools for Putting Strategy

into Action

Environment Organization St ra te gy Performance Leadership  Persuasion  Motivation  Culture/values Structural Design  Organization Chart  Teams  Centralization _{Decentralization,}

 Facilities, task design

Human Resources  Recruitment/selection  Transfers/promotions  Training  Layoffs/recalls

Information and Control Systems

 Pay, reward system

 Budget allocations 

Information systems  Rules/procedures

12

Portfolio Strategy

• Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage BCG Matrix Exhibit 8.5 0

13

Strategic Management

Process

Implement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systems SWOT Formulate Strategy – Corporate, Business, Functional Define new Mission Goals, Grand Strategy Identify Strategic Factors – Strengths, Weaknesses Identify Strategic Factors – Opportunities, Threats Scan Internal Environment – Core Competence, Synergy, Value Creation Evaluate Current Mission, Goals, Strategies Scan External Environment – National, Global 0

conclusion

• In order to formulate Business functions

strategy is to be formulated as well as

implemented with the right approach

• Management is basically managing the

strategies and making them function.

• Strategic management of an

organization leads to the benefits as well

as growth of the organization.

14

Strategic Planning:

• Strategic planning is concerned with the growth and future of a business enterprise.

• It consists of a stream of decisions and actions that lead to effective strategies and which, in turn, help the firm achieve its growth objectives.

• The process involves a thorough self-appraisal by the corporation, including an appraisal of the business it is engaged in and the environment in which it operates. • Marketing environment keeps changing fast. Practically

everything outside the four walls of the firm is changing fast, resulting in a discontinuity with the past.

• Strategic planning provides the road map and ensures that the enterprise keeps moving in the right direction.

Strategic Planning (contd.)

Starting from the corporation’s mission and philosophy, down to choice of businesses and strategies, all vital aspects in the governance of business are chartered through strategic planning.

It is through strategic planning that the corporation takes decisions

concerning its mission, the business it will pursue and the markets it will serve; it is through strategic planning that it lays down its growth objectives and formulates its strategies.

In other words, all decisions of high significance and consequence to a corporation are taken through the strategic planning process.

Strategic planning ensures that these resources are put to optimum and best possible use.

Strategic planning helps the firm acquire the best of a lead time for all its crucial decisions and actions, as it helps the firm anticipate

trends.

Strategic planning has the burden of equipping a corporation with the relevant competitive advantages in its fight for survival and growth.

Strategic Planning is concerned with the

a) Future or long-term dynamics of the firm; not day-to-day tasks. b) Growth – direction, extent, pace and timing of growth.

c) Environment, the fit between the enterprise and its environment. d) Business portfolio - Basket of businesses the firm should have –

changes/additions/deletions to the firm’s product-market posture. e) Its concern is strategy – not routine operational activities – growth

priorities, choice of corporate strategy and choice of business level/competitive strategy are its concern.

f) Creation of core competencies and competitive advantages, is its concern. This equips the organization with capabilities needed to face uncertainties.

g) Integration of all management functions – not a particular function. It views the organization/business in its totality.

h) Corporate strategy – creating long-term, sustainable organizational capability.

Components of Strategic Planning:

1. Clarifying the mission of the corporation

2. Defining the business

3. Surveying the environment

4. Internal appraisal of the firm

5. Setting the corporate objectives

1.

Clarifying the mission of the corporation

• The mission is the expression of the corporate intent telling insiders and outsiders what the corporation stands for.

• The mission carries the grand design of the firm and communicates what it wants to be. It subtly indicates the business the firm will pursue and the customer needs it will seek to satisfy.

• The mission is shaped by the capabilities and vision of the corporation’s leaders.

• The business philosophy of the founder and present leaders of the corporation gets expressed through the mission statement.

• The mission directs the entire planning endeavour of a corporation.

• The mission is a reference point and the guiding spirit for the growth plan of a firm.

• It brings the corporate purpose or the long-term objective of the firm into focus.

2. Defining the business

• A business definition is a pithy, clear-cut statement of the business or businesses the firm is engaged in or is planning to purse. It

prescribes the boundaries of the firm’s business.

• Defining the business correctly is the pre-requisite for selecting the right opportunities and steering the firm on the correct path. Even to understand what constitutes its relevant environment and to make the environmental search effective, the firm must have a proper definition of the business it is in.

• Defining one’s business has become an exacting exercise today because of the fast changes taking place in the areas of technology, products and customer preference.

• When product-market boundaries get extended, when different

product categories of yesteryears blend and merge, and when new and substitute products keep invading the market altering existing business boundaries, understanding and defining one’s business becomes very difficult.

3. Surveying the environment

• Today strategic planning occupies the central stage in management purely because a great deal of change is taking place in the

environment.

• In environmental survey, basically a firm gathers all relevant information and analyses it in detail. It analyses the macro

environmental factors as well as the environmental factors that are specific to the business concerned. Under the macro factors, the firm studies the demographic, socio-cultural and economic scene. It also studies the political environment, the legal environment and the government policies covering various areas.

• As for the environmental factors that are more specific to the

business, the firm studies the emerging trends in the industry, the structure of the industry and the nature of the competition. It also studies the market and the customer closely. It examines alternative technologies that are emerging, their relative cost-effectiveness, and the scope for invasion by substitutes.

• The significant point is that under environmental study, the firm does not confine the study to the existing business but looks beyond it, because both opportunities and threats can emerge from many difference sources.

4. Internal appraisal of the firm

• While environmental survey helps to identify

areas of opportunities and threats in the areas of

interest, in order to tap these opportunities, it is

necessary to find out whether the firm has the

requisite capabilities. For this an internal

appraisal is undertaken.

• Internal appraisal has three distinct parts:

– assessment of the strengths and weaknesses of the firm in different functional areas;

– appraisal of the health of individual businesses;

– assessment of the firm’s competitive advantage and core competence.

5. Setting the corporate objectives

• The main task here is to decide the extent of business growth, the firm wants to achieve. The firm examines the present level of performance, its achievable level over the planning period, and its aspirational level. Balancing the opportunities with the organization’s capabilities and ambitions, the firm figures out its growth objective.

Usually, firms set objectives in all key areas, like, sales, profits, asset formation, productivity, market share, and corporate image.

• Objectives have to be stated clear-cut in a measurable time-bound manner. In setting objectives, the firm

integrates its growth ambition with the findings it has

6.

Formulating the corporate strategy

Product-market scope, growth vector, competitive

advantage and synergy are the constituents of corporate strategy. Findings from the environment

survey/opportunity-threat profile, the competitive

advantages and synergies enjoyed, and the resources available for growth, are the other major parameters in deciding the basket of businesses and the

product-market posture. Corporate strategy has to specify through which businesses and through what kind of

product-market posture is the growth objective going to be achieved. And it is from this statement that each

business of the corporation –existing and new ones – derives its growth targets, direction and priority.

Formulating the corporate strategy (contd.)

• Business appraisal and choice of strategy go hand in hand. The firm decides which businesses are to be

cultivated through fresh investment and care, which ones are to be given mere maintenance, without committing much further investment and which businesses it should phase out. Standard analytical models can be of help to the strategic planner, in the matter of bringing to the fore what needs to be done with the different businesses.

• Most large companies consist of four organizational levels – the corporate level, the Division level, the business unit level and the product level.

Formulating the corporate strategy (contd.)

• Corporate headquarters is responsible for designing a corporate strategic plan to guide the whole enterprise; it makes decisions on the amount of resources to allocate to each division; as well as which business to start or eliminate.

• Each Division establishes a plan covering the allocation of funds to each business unit within the division.

• Each Business Unit develops a strategic plan to carry that business unit into a profitable future.

• Each product level (product line, brand) within a

business unit develops a marketing plan for achieving its objectives in its product market.

STRATEGIC

MANAGEMENT

28

MEANING & DEFINITION

• Strategic Management can be defined as “the art and science of formulating, implementing and

evaluating cross-functional decisions that enable an organization to achieve its objective.”

• Definition:

“The on-going process of formulating,

implementing and controlling broad plans guide the organization in achieving the strategic goods given its internal and external environment”.

COMPARISON

STRATEGIC TACTICAL OPERATIONAL

Long range Intermediate Short range 3 or more yrs 2-3 yrs One yr

Top mgt Middle Lower

Broad objectives Integration of departments Day to day working Focus on planning &

Benefits of Strategic Planning

• Roadmap to firms

• Utilization of resources

• Respond to environmental changes

• Minimizes chances of mistakes

• Creates framework of internal

communication.

Levels of Strategic Planning



_{Corporate –Level}



_{Business-Level}



_{Functional -Level}

Elements of a Strategy



Goals



Scope



_{Competitive Advantage}



_Logic

Various types of strategies

MASTER STRATEGIES PROGRAMME STRATEGIES SUB-STRATEGIES TACTICS

BUSINESS POLICY

Business policy provides a basic framework defining

fundamental issues of a company, its purpose,

mission and broad business objectives and a set of

guideline governing the company's conduct of

business within its total perspective.

 Overall Guide

Types of Policies

MAJOR POLICIES:

 _{Lines of business}

 _{Code of ethics}

SECONDARY POLICIES:

 _{Selection of geographic area}

 _{Identification of major customers}  _{Major products}

Types of Policies

FUNCTIONAL POLICIES

:

 _Production  _Marketing  _Finance  _Personnel  _Research RULES:

 _{Salary & wage Adm.}  _{Discipline& discharge}  _{Welfare Adm}

Types of Policies

• PROCEDURES & STANDARD OP. PLANS:



_{Handling & processing of orders}



_{Shipments of foreign locations}



_{Servicing customer complaints}

Strategy Vs Policy

STRATEGY

POLICY

Strategic decisions

Guidelines

Putting a policy into effect General course of action

Deals with crucial

decisions, requires top

mgt involvement.

Once formulated can be

delegated to lower levels

STRATEGIC

STRATEGIC MANAGEMENT PROCESS

(SMP)

1. Vision formulation which leads to the

statement of the Mission.

2. The mission is then converted into

performance Objectives

3. To achieve objectives you develop

Strategies

4. Strategy Implementation

Diagram

(Strategic mgt by VSP Rao and V Hari

Krishna)

Purpose of SMP

• CORE COMPETENCE

• SYNERGY

• CORE COMPETENCE:

An org’s core competence is something it

does exceptionally well in comparison to

its competitors. It reflects a distinct

competitive advantage like superior

research, development etc..

SYNERGY:

Two or more sub systems working together

to produce more than the total of what

might they produce working alone.

1+1=3

• VALUE CREATION:

Exploiting core competencies and

achieving synergy help organizations

create value for customers. Value is the

sum total of benefits received and cost

paid by the customer.

Steps in SMP

• Vision,Mission,Objectives

• External Analysis

• Internal analysis

DETAILED IN (Strategic mgt by VSP

Rao and V Hari Krishna

)

STRATEGY FORMULATION

• CORPORATE LEVEL STRATEGIES:

 _{Growth/Expansion Strategy}  _{Stability Strategy}

 _{Retrenchment Strategy}  _{Combination Strategy}

• FUNCTIONAL LEVEL STRATEGY:

• R & D Strategy

• Operations Strategy • Financial Strategy • Marketing Strategy

STRATEGY FORMULATION &

IMPLEMENTATION

• Detail & Diagram :

(

Strategic mgt by VSP Rao and V Hari

Motivational Techniques To

Implement Strategy

• MBO

• Incentives

• Performance appraisal

• Salary Administration

• Recruiting & termination

• Security

STRATEGIC INTENT

:

• Strategic intent is

about clarity, focus

and inspiration.

VISION

MISSION

OBJECTIVES

GOALS

VISION

• Corporate vision is a short and

inspiring

statement of what the organization intends to

become and to achieve at some point in the

future, often stated in competitive terms. Vision

refers to the category of intentions that are

broad, all-inclusive and forward-thinking. It is

the image that a business must have of its goals

before it sets out to reach them. It describes

aspirations for the future, without specifying the

means that will be used to achieve those desired

ends .

Mission

• Mission Statement describes what business you’re in and who your customer is. As such, it captures the very essence of your enterprise - its relationship with its

customer.

• Developing mission statement is the step which moves your strategic planning process from the present to the future. It depicts the mission statement connects “today” with the “future.” Your mission statement must “work” not only today but for the intended life of your strategic plan of which your mission statement is a part. If you’re

developing a five year strategic plan, for example, you develop a mission statement which you believe will

Values

• For any statement, whether mission or vision, to

be embraced and acted upon, it must reflect the

values of your organization.

• Values describe what your management team

really cares about. What it holds dear. What

“makes ‘em tick.” How would your managers

respond to a trade-off between product quality

and profit? That’s really a question of value.

Corporate Goals & Objectives

•

Role of Objectives:

1. Legitimacy

2. Direction

3. Coordination

4. Benchmarks for success

5. motivation

Characteristics of obj;

• Obj. form a HIRERACY

• Network

• Multiplicity of Obj

• Env. may be defined as the set of external factors such as economic, socio cultural, Govt. & legal, demographic, which are uncontrollable in nature & affect the business decisions of a firm or company.

1) Micro Environment 2) Macro Environment • Micro

Environment-1) Supplier

2) Customers-industrial, retailers, wholesalers, Govt., foreigners

3) Market intermediates- middlemen, physical distribution firms, marketing service agencies, and financial

•

Competitors- _{Desire competitions – limited disposable income many} unsatisfied desires T.V./washing machine/ investment  Generic competition-among alternatives which satisfied

particular category of desire- Investment in U.T.I./P.O./Bank/Any other.

 Product form competition- Washing machine, semi/ automotive  _{Brand competition- videocon/godrej}

• Public –

 _media

 citizen action public  _{local public}

• Macro Environment-uncontrollable

1. Economic Environment

 _{Eco. Conditions- business cycle, growth of economy, size of} domestic Market & its dynamic effect

 _{Eco. Policies- budgets, industrial regulations, eco planning,} import & export regulations, business laws, , industrial policy, control on price & wages, trade & transport policy, size of

national income, demand & supply of various goods  _{Economic System—of a country}

 _{free enterprise i.e. capitalist}

 _socialist

 _communist

2. Political & Govt. Environment.

-•

_{Legislature- decide particularly course}

of action

•

_{Executive -implementation}

•

Judiciary -to see above both working

public interest.

3. Socio Cultural Environment- people

attitude to work & health, role of family,

marriage, religion & education, ethical

issues, social responsibilities of business

4. Natural Environment- geographical &

ecological factors- natural resources

endowments, weather & climatic

conditions, topographical factors,

locational aspects, port facilities

5. Demographic Environment. - Size

growth age composition of population,

family size, economic stratification of

population, educational level, caste

religion etc.

6. Technological Environment-

marketing, innovation, R & D

7. International Environment-liberation

• Environmental Scanning: helps every mgt in

attaining maximum profits and growth and the

same time helps in minimization of future threats.

Environment analysis has 3 basic objectives

• Under taking of current & potential changes

• Should provide inputs for strategic decision making

• Rich source of idea & understanding of the context,

Environmental

Analysis-Scanning – general supervision of all env. Factors & their interaction in order

1. to identify early signals of change, 2. Detect env. Changes underway

Monitoring -- tracking the env. Trends sequences of events or stream of activities. Study of Indicators, assemble data to discern emerging patterns. Three outcomes emerges in monitoring

1. A specific description of env. trends 2. Identification of trends

3. Identification of areas of further scans

Forecasting -scanning & monitoring provide a picture of what is

happening strategic decision Making requires future orientation. Forecasting is developing future projections of changes

Assessment - outputs of above 3 steps are assessed to determine

implementation. Assessment involves identifying & evaluate how & why current & projected env. Changes affect strategic Mgt. Of the

Techniques of Environment

Analysis

• SWOT Analysis, strengths, weakness, opportunities, & threats. • Forecasting methods

• Time services analysis & projection-moving averages, exponential smoothing book Jenkins, trend projection.

• Casual Methods- regression model, econometric model, anticipation surveys, input output model, diffusion index, leading indicators, life cycle analysis.

• Qualitative Method-Delphi method, market research, panel consensus, visionary forecast, historical analogy.

• Scenario technique- preparation of background, selection of critical

indicators, establishing past behavior of indicators, verification of potential future events, forecasting the indicators, writing of scenario.

• Preparation of ETOP-environmental threat & opportunity profile is a summary of environmental factors. It is a structured way. Assessing

Importance of environmental factors, assessing impact factor combining importance & impact factor.

Environmental Scanning &

Monitoring

Environmental scanning

is a concept from

business management by which businesses gather

information from the environment, to better achieve

a

sustainable competitive advantage

.

To sustain competitive advantage the company must

also respond to the information gathered from

environmental scanning by altering its

strategies

Environmental Scanning &

Monitoring-

Techniques

SWOT

Industry Analysis

Techniques

Competitor

Analysis

PEST

QUEST

SWOT

(Strength-Weakness-Opportunity-Threat)

Identification of

threats

and

Opportunities

in the environment

(External) and

strengths

and

Weaknesses

of the firm (Internal) is

the cornerstone of business policy

formulation; it is these factors which

determine the course of action to

ensure the

survival and growth

of the

firm.

PEST Analysis – The

Meaning

• A PEST analysis is an analysis of the external

macro-environment that affects all firms.

• P.E.S.T. is an acronym for the Political, Economic, Social,

and Technological factors of the external

macro-environment.

• Such external factors usually are beyond the firm's control

and sometimes present themselves as threats.

• However, changes in the external environment also create

new opportunities.

A. Industry Life Cycle Analysis

B. Study of the structure and

characteristics of an Industry

C. Profit Potential of Industry (Porter

Model)

Industry Analysis: Three sections

A. Industry Life Cycle Analysis

A. Industry Life Cycle Analysis

Four Stages:

•

Pioneering Stage

•

_{Rapid Growth Stage}

•

Maturity and Stabilization Stage

•

Decline Stage

B. Study of the structure and

characteristics of an Industry

B. Study of the structure and

characteristics of an Industry

1. Structure of the Industry and nature of

Competition

2. Nature and Prospectus of the demand

3. Cost, Efficiency and Profitability

Michael Porter has argued that the profit

potential of an industry depends on the

combined strength of the:

1. Threat of new entrant

2. Rivalry among existing firms

3. Pressure from substitute products

4. Bargaining power of buyers

5. Bargaining power of sellers

3. Profit Potential of Industry (Porter

Model)

3. Profit Potential of Industry (Porter

Model)

• SWOT analysis

• Value chain Analysis

• Financial Analysis

• Key factor rating

• Functional area profile

Internal Analysis

Resource-Based View



Firms have heterogeneous resources and capabilities.



By exploiting core competencies, firms can develop value-creating

strategies superior to their competitors.



Four criteria must be met for a sustained competitive advantage._Valuable

Costly to imitate Rare

Internal Analysis

Resources

Resources • Tangible_Tangible • Intangible_Intangible • Brand Equity_{Brand Equity}

Capabilities Capabilities Core Core Competencies Competencies Competitive Competitive Advantage Advantage Above-Average Above-Average Returns Returns

Components of the Resource-Based View

Internal Analysis

Resources and Capabilities:



Resources

•

Represent what the firm has to work with.

•

Resources must be combined to establish a capability.

•

Types:

• Tangible

• Intangible

Internal Analysis

Tangible Resources – Assets that can be seen, touched or quantified.

- Financial resources (borrowing capacity) - Physical Resources (facilities, locations)

- Organizational structure (reporting structures) - Technological (patents)

Intangible Resources

- Human resources (experience, training)

- Resources for innovation (technical employees, facilities) - Reputation

Brand Equity

- Brand name

- maintaining brand equity (Mercedes example – value/performance

VALUE CHAIN ANALYSIS

• A value chain identifies and isolates the

various economic value adding activities

that occur in every firm. It portrays

activities required to crate value for

customer for a given product.

The Value Chain System

• A firm's value chain is part of a larger

system that includes the value chains of

upstream suppliers and downstream

channels and customers. Porter calls this

series of value chains the value system,

Porter's Generic Value Chain

Porter's Generic Value Chain

M Inbound Logistics > Operations _> Outbound Logistics > Marketing & Sales > Service _> A R G I N Firm Infrastructure HR Management Technology Development Procurement

The primary value chain activities

are:

• Inbound Logistics: the receiving and

warehousing of raw materials, and their

distribution to manufacturing as they are

required.

• Operations: the processes of transforming

inputs into finished products and services.

• Outbound Logistics: the warehousing and

distribution of finished goods.

•

The primary value chain

activities are:

• Marketing & Sales: the identification of

customer needs and the generation of

sales.

• Service: the support of customers after

the products and services are sold to

These primary activities are

supported by:

• The infrastructure of the firm:

organizational structure, control systems,

company culture, etc.

• Human resource management: employee

recruiting, hiring, training, development,

and compensation.

These primary activities are

supported by:

• Technology development: technologies to

support value-creating activities.

• Procurement: purchasing inputs such as

materials, supplies, and equipment.

Cost Advantage and the Value

Chain

• Porter identified 10 cost drivers related to

value chain activities:

• Economies of scale

• Learning

• Capacity utilization

• Linkages among activities

10 cost drivers related to value

chain activities:

• Degree of vertical integration

• Timing of market entry

• Firm's policy of cost or differentiation

• Geographic location

• Institutional factors (regulation, union

activity, taxes, etc.)

Differentiation and the Value

Chain

• Policies and decisions

• Linkages among activities

• Timing

• Location

Differentiation and the Value

Chain

• Learning

• Integration

• Scale (e.g. better service as a result of

large scale)

Technology and the Value

Chain

• Inbound Logistics Technologies

• Transportation

• Material handling

• Material storage

• Communications

• Testing

• Information systems

Operations Technologies

• Process

• Materials

• Machine tools

• Material handling

• Packaging

Operations Technologies

• Maintenance

• Testing

• Building design & operation

• Information systems

Outbound Logistics

Technologies

• Transportation

• Material handling

• Packaging

• Communications

• Information systems

Marketing & Sales

Technologies

• Media

• Audio/video

• Communications

• Information systems

Service Technologies

• Testing

• Communications

Linkages Between Value Chain

Activities

• Value chain activities are not isolated

from one another. Rather, one value

chain activity often affects the cost or

performance of other ones. Linkages may

exist between primary activities and also

between primary and support activities.

Linkages Between Value Chain

Activities

• Consider the case in which the design of a

product is changed in order to reduce

manufacturing costs. Suppose that

inadvertently the new product design

results increased service costs; the cost

reduction could be less than anticipated

and even worse, there could be a net cost

increase.

Outsourcing Value Chain

Activities

• Whether the activity can be performed

cheaper or better by suppliers.

• Whether the activity is one of the firm's

core competencies from which stems a

cost advantage or product

Outsourcing Value Chain

Activities

• The risk of performing the activity

in-house. If the activity relies on fast

changing technology or the product is

sold in a rapidly-changing market, it may

be advantageous to outsource the activity

in order to maintain flexibility and avoid

the risk of investing in specialized assets.

Outsourcing Value Chain

Activities

• Whether the outsourcing of an activity

can result in business process

improvements such as reduced lead time,

higher flexibility, reduced inventory, etc.

Financial Analysis

• Assessment of the firm’s past, present and

future financial conditions

• Done to find firm’s financial strengths and

weaknesses

• Primary Tools:

– Financial Statements

– Comparison of financial ratios to past,

industry, sector and all firms

Types of Ratios

• Financial Ratios:

– Liquidity Ratios

• Assess ability to cover current obligations

– Leverage Ratios

• Assess ability to cover long term debt obligations

• Operational Ratios:

– Activity (Turnover) Ratios

• Assess amount of activity relative to amount of resources used

– Profitability Ratios

• Assess profits relative to amount of resources used

• Valuation Ratios:

LIQUIDITY RATIO:

Current Ratio= Current Assets/Current

Liabilities.

LEVERAGE RATIO

• Debt-Equity Ratio:

Total long term debt/Shareholder’s funds

• Interest coverage ratio: EBIT/shareholder’s funds

• Proprietary ratio: Shareholder’s funds/total assets

Activity Ratio

• Asset Turnover = Sales turnover / assets employed

• Stock turnover = Cost of goods sold / stock expressed as

times per year

• Working Capital ratio = Sales (net)/W.C.

Profitability ratio

• G.P.ratio=GP/Net Sales

• N.P.ratio=NP/Net sales

Operating Profitability Ratios

Assets

Total

EBIT

Assets

Total

Sales

Sales

EBIT

=

×

Assets

Total

Tax

Before

Net

Assets

Total

Expense

Interest

Assets

Total

EBIT

=

−

KEY FACTOR RATING

• The key factors that affect org functioning.

Info regarding key factors is collected.

Answers are being closely examined with

respect to key factors. The impact of each

key factor is examined.

FUNCTIONAL AREA PROFILE & RESOURCE DEVELOPMENT MATRIX

• To make a comparative analysis of a firm’s

own resource deployment position and focus

of efforts with those of competitors.

• First, technique requires preparation of matrix

of functional area with common features.

• Secondly matrix is prepared showing

deployment and focus of efforts over a period of

time.

STRATEGIC ADVANTAGE PROFILE

• SAP tries to find out the org strengths and

weaknesses with relation to some CSF.

Critical Success Factor Analysis

• Developed – John Rockart

• Satisfactory performance – required – for organization

– achieve goals

• Identify – tasks & requirements – for success

• CSFs – means to achieve goals

• Sources of CSF - industry, environment & temporal

factors

• Characteristics of CSF Analysis

– Internal

– External

– Monitor

– Develop

• Process of CSF Analysis – Identify

– CSF

– Critical information – internal & external

– Critical assumption set

• Benefits of CSF Analysis

– Results –needs – enterprise – clearly

– Measure success – prioritize goals

Long term Mission & Goals

• Mission – short /long term activity – to achieve vision • Mission statement – statement that communicates –

total essence – organization

• Gives – what an organization is today and what it should be

• Characteristics of mission statement

– Feasible,

– Precise

– Clear

– Motivating

• Characteristics of successful strategic

planning

– Will lead to action

– Builds a shared vision which is value based

– Will be a participative process

– Accepts accountability

– Externally focused to organization’s

environment

– Will be relying on quality data

Contingency Planning

• Contingency planning – approach – identify –

what if – something wrong happens

• Planning – strategies – cope up – contingency

events

• Objective – make – to think – possible

contingencies and its responses

• Process of contingency planning

– Identifying - Identify events when plan is to be invoked and who will be responsible for implementing it

– Assessing - Assess the value of the resources and correlate them with their functions to identify the critical elements

– Prevention - Preventative measures for critical resources

– Developing – build the plan – simple & straight forward – step by step workflows an checklists

• Benefits of contingency planning

– Strengthens the organization – cope up with unexpected developments

– Reduces stress – reduce delay & indecisiveness – Respond sensibly & wisely

– Focus on issues and identify constraints – Clarifies roles and responsibilities

• Barriers

– Maintaining commitment & participation – Keeping the process on going

BALANCED SCORECARD

FRAMEWORK

Vision & Strategy Learning & growth Internal Business process Financial perspective Customer’s Perspective

BALANCED SCORECARD

FRAMEWORK

Translate Strategy to Operational terms

The Strategy

Financial Perspective

“If we succeed, how will we look to our shareholders

Customer Perspective “To achieve my vision, how must we look to our customers?

Internal Perspective “To satisfy my customer, at which processes must I excel?”

Organization Learning

“To achieve my vision, how must my organization learn and improve?’’

A Strategy Is A Set of of Hypo_theses About Cause & _Effect

60% of organization s don’t link strategy & budgets 85% of management teams spend less

than

one hour per

month on strategy issues STRATEGY Strategic Learning Loop BALANCED SCORECAR D

Strategy

Balanced

Scorecard

A good Balanced scorecard describes the

Organizational Strategy

• Outcome measures ( results from past efforts)and

the measures that drive performance

•Objective, easily quantified outcome measures and

subjective, somewhat judgmental performance

drivers

•Lagging and leading indicators

•Short-term and long-term objectives

•Stakeholders

•BSC ‘s are more than just a somewhat adhoc

collection of financial & non-financial

performance measures

•BSC is a Top –down process driven by the

mission and strategy

•Clarify and translate vision and strategy

•Communicate and link strategic objectives and

measures

•Plan ,set targets, and align strategic initiatives

•Enhance strategic feedback and learning

•Clarify and gain consensus about strategy

•Communicate strategy throughout the organization

•Align departmental and personal goals to strategy

•Link strategic objectives to long term targets and

annual budgets

•Perform periodic and systematic strategic reviews

•Obtain feedback to learn about and improve strategy

Indicate whether company’s strategy implementation and

execution are contributing to bottom-line improvement

•Profitability

•Operating income,

•Return-on-capital employed (ROCE)

•EVA

•Growth

•Cash flow

Financial perspective

Finan cial P erspe ctive “If w e suc ceed , how will we look t o our share holde rs

Financial perspective

Finan cial P erspe ctive “If w e suc ceed , how will we look t o our share holde rs Increase EVA to +2% Productivity Strategy Revenue Growth Strategy

Customer Perspective

Customer & Market segment in which the unit is

competing

•Performance in the targeted markets

•Customer satisfaction

•Customer retention

•New customer acquisition

•Customer profitability

•Specific measures of value propositions- short lead

time or on-time delivery

•New approaches to satisfy emerging needs

Custo mer P ersp ectiv e “To a chiev e my v ision , how must we lo ok to our custo mers?

Customer Perspective

Relation ship On time delivery Technical support Survey Assistance Differentiators

•Basic Requirement_{Basic Requirement}

•Clean •Quality

•Variability within specified limits

Win-win Relations with Channel partners

Internal –Business-process perspective

Critical internal process in which organization must

excel

Intern al Pe rspe ctive “To satis fy m y cus tomer , at which pro cess es m ust I exce l?” Deliver value

proposition Satisfy shareholders _expectations

Internal – Process

Identify entirely new process at which organization must excel to meet customer & financial objectives

Internal –Business-process perspective

Intern al Pe rspe ctive “To satis fy m y cus tomer , at which pro cess es m ust I exce l?” Achieve Operational excellence Customer Value

Learning and growth perspective

Infrastructure that organization must build to create

long-term growth and improvement

•People based measures

•ESI

•Competencies

•Skill Mix

•Systems (Technology)

Org aniza tion Lear ning “To achi eve my visio n, h ow m ust m y orga niza tion lear n an d im prov e?’’

Learning and growth perspective

Climate for action IT Technology Competencies •ESI

Motivated and prepared workforce

ROCE Customer Loyalty On-line delivery Process Cycle Time Process Quality Employee Competency

Four perspectives: Are they sufficient

•Community perspective

- Social responsibility

•Suppliers perspective

Question : Is it vital for success of business unit’s

strategy?

The Balanced Scorecard Effectively Communicates

How Well the MSO Is Achieving Their Mission Massachusetts Special Olympics Mission Statement

Positive Image # of new programs / # athletes

Community  Volunteer retention / recruitment Involvement  New donors Athlete Outreach /  Donor

feedback

Program Expansion  # athletes in outreach program F in a n c ia l D o n o r

Training & Competition  # athletes not able to find a team

Controlled Cost  Cities with no registered athletes

Quality Programs  Fee increase Community For  Family

feedback Athletes  # of activities outside of competition C u s to m e r / A th le te Objectives Measures

Organization and Administration  % Plans distributed team

Public Relations meetings  # area management team

 $ raised

Training  # training classes offered outreach  # first time athletes

In te rn a l O p e ra ti o n s

Objectives Measures Objectives Measures

Objectives Measures

Knowledge of MSO  Volunteers trained in MSO and sports

Management  Registration forms in one time

 Program guide distribution Database Management  Volunteers in database Recognition  Advanced coaches’ training/

coaches’/ meetings In te rn a l O p e ra ti o n s

Balanced Scorecard - Example

Vision

To provide patients, families and primary care physicians with the best, most compassionate care possible and to excel at communications

Customer

Patient Primary Care Physician

• % Satisfied • % Satisfied with • % would Recommend Communication • % Parents Could • % Parents Could Articulate Care Plan Identify DCH Physician • Discharge Timeliness

Financial

• Operating Margin

• Cost per Case • Revenue from Neonatal Care

Internal Processes

Wait Time Quality Productivity

• Admissions • Infection Rates • Length of Stay • Discharge • Blood Culture • Readmission Rate

Contaminate Rate • Daily Staffing vs. • Use of Clinical Occupancy

Pathways (Top 10)

Learning & Growth

• Incentive Plan • Strategic Database - Awareness - Availability - Implementation - Use

A successful Balanced

Scorecard program starts

with a recognition that it is

not a metrics” project, it’s a

“change” process.

A Good Balanced Scorecard

Describes the Organization

Strategy.

Strategic Objectives Strategic Measures

Fi n a n ci a l F1 Return on Capital Employed F2 Existing Asset Utilization F3 Profitablity F4 Industry Cost Leader F5 Profitable Growth  ROCE  _{Cash Flow}

 _{Net Margin Rank (vs.} Competition)

 _{Full Cost per Gallon} Delivered (Vs.

Competition)

 _{Volume Growth Rate} vs. Industry  _{Premium Ratio}  _{Non-Gasoline Revenue} and Margin Financially Strong Financially Strong C u st o m e

r Delight the Customer

Win-Win Dealer Relationship C1 Continually Delight the Targeted Consumer C2 Build Win-Win Relations with Dealer  _{Share of Segment in} Selected Key Markets  _{Mystery Shopper}

Rating

 _{Dealer Gross Profit} Growth

Le a rn in g & g ro w th In te rn a l

Build the Franchise

Increase Customer Value Operational Excellence Good Neighbor I1 Innovative products and services I2 Best-in-class Franchise Teams I3 Refinery Performance I4 Inventory Management I5 Industry Cost Leader I6 On Spec-On Time I7 Improve EHS

 _{New Product ROI}  _{New Product}

Acceptance Rate  _{Dealer Quality Score}  _{Yield Gap}  _{Unplanned Downtime}  _{Inventory Levels}  _{Run-out Rate}  _{Activity Cost. vs.} Competition  _{Perfect Orders}  _{Number of} Environmental Incidents

 _{Days Away from Work} Rate

Motivated and

Prepared Workforce

L1 Climate for Action L2 Core Competencies and Skills L3 Access to Strategic Information  _{Employee Survey}  _{Personal BSC (%)}  _{Strategic Competency} Availability  _{Strategic Information} Availability

A Good Balanced Scorecard

Describes the Organization

Strategy.

MAKE STRATEGY EVERYONE’S JOB

Top-Down “Bridging Process” To Share the

Strategy & Align the Workforce

Bottom-Up Process to Internalize & Execute the Strategy

CORP SBU • EDUCATION • PERSONAL GOAL ALIGNMENT • BALANCED PAYCHECKS

Build STRATEGY-FOCUSED ORGANIZATIONS STRATEG Y Mobilize Change through Executive Leadership Make Strategy a Continual process Translate the Strategy to Operational Terms Align the Organization to the Strategy Make Strategy Everyone’s Job • Mobilization • Governance Processes • Strategic Management

• Link Budgets & Strategy • Strategic Learning

• Analysis & Information System

• Strategic Awareness • Personal Scorecard • Balanced Paychecks • Corporate Role

• Business Unit Synergic • Support Unit Synergic • Strategy Mape • Balanced Scorecards 1 2 3 4 5

Describing Strategy : Strategy Is a Step in a Continuum MISSION Why we exist VALUES What we believe In VISION What we want to be STRATEGY

Our game plan

BALANCED SOCRECARD

Implementation & Focus

STRATEGIC INITIATIVES What we need to do PERSONAL OBJECTIVES What I need to do STRATEGIC OUTCOMES Satisfied

What Is A Good Balanced Scorecard?

#1. Executive Involvement

Strategic decision makers must validate the strategy and related measures

#2 Cause-and-Effect Relationships

Every objective selected should be part of a chain of cause and effect that

represents the strategy

#3 Performance Drivers

A balance of outcome measures and leading measures facilitates anticipatory management

#4 Linked to Budget/Financials

Every measure selected can ultimately be supported/enabled by Budgetary Funds

#5 Change Initiatives

Aligned Strategic Initiatives that change the behavior of the organization

CORPORATE LEVEL

STRATEGIES

Types of CLS

• Growth/expansion

• Stability

• Retrenchment

• combination

Growth/Expansion

A) INTENSIFICATION

 _{Market penetration}  _{Market development}  _{Product development}  _Innovation

B) DIVERSIFICATION

 _Concentric  Conglomerate  _Forward  Backward

Concentric Diversification(RELATED

)

• When an org diversifies into a related but

distinct business. With concentric

diversification, new businesses can be

related to existing businesses through

products, markets or technology.

CONGLOMERATE(UNRELATED)

• An org diversifies into an area that are

unrelated to its business. The decision is

taken due to technological change.

STABILITY STRATEGY

• When firms are satisfied with their current rate of growth and profits, they may decide to use a stability strategy. This strategy is essentially a continuation of existing strategies. Such strategies are typically found in

industries having relatively stable environments. The firm is often making a comfortable income operating a

business that they know, and see no need to make the psychological and financial investment that would be required to undertake a growth strategy.